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Debt Options Information for Tenants in Reading

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Debt Options Information for Tenants in Reading Debt Options Information for Tenants in Reading 0 Paying back your debts When you have completed your financial statement and have dealt with any priority debts you can review your debt options. Our Budgeting Handbook is available at www.reading.gov.uk/debtadvice to help you with this. This booklet explains each of the below debt options in more detail to help you make an informed decision on how you deal with your debts. There are informal debt options where your creditors have a choice to accept your decision. These include: Extended Holds Token Payments Pro-Rata [Page 2] [Page 2] Arrangements [Page 3] Debt Management Write Off / Partial Full and Final Plans [Page 4] Write Off [Page 4] Settlements [Page 5] There are also formal debt options where your creditors have less/no choice to accept your decision. Individual Voluntary Bankruptcy Arrangement [Page 6] [Page 7] Debt Relief Order Administration [Page 9] Order [Page 10] Sometimes you will need to use more than one of the options in this booklet, for example asking for you to not make any payments for a period of time whilst you save for a Debt Relief Order. Remember, if you are in debt and do not take action, your debts will increase as your creditors will continue to add charges and interest. There are sample letters at the back of this booklet to help you write to your creditors. If you are not sure what to do, or need further information, please contact Reading Borough Council’s Debt Advice Team on 0118 937 2197 or an organisation at the back of this booklet. 1 Informal Debt Options Extended Holds This is where a six month hold is requested as you are not able to repay your debts for a period of time. This will not resolve your debt problems, so it’s important to work towards a long term solution. You should send a copy of your financial statement with a sample holding letter (page 11) to ask your creditor to suspend interest and other charges so your debt does not continue to grow (they can refuse, but keep asking). Advantages Allows you to focus on making payments to your priority debts, and helps maintain goods and services. Provide you with some time to look at long term solutions without constant contact from creditors. Your creditors will understand your situation, and can make informed decisions about collection of the debt. Disadvantages Creditors do not have to hold recovery, they can refuse your request and continue interest and charges. This may affect your credit rating. It does not repay your debts. Token Payments Token payments are a low arrangement offered to a creditor. They can be anything from £1 per month and shows that you want to repay the debt. Token payments will not resolve your debt problems, so it’s important to work towards a long term solution. You should send a copy of your financial statement with a sample token payment letter (page 14) to ask your creditor to suspend interest and other charges so your debt does not continue to grow (they can refuse). Advantages Sometimes token payments are the only way for a creditor to agree to hold interest and charges, and prevent recovery action. You are paying something towards the debt whilst you look into long term solutions. The creditor may agree to take no further action whilst token payments are being made. Disadvantages Token payments use money you might struggle to find. There may be costs involved in making payments, consider using standing orders or direct debits. This may affect your credit rating. It does not repay your debts. 2 Pro-Rata Arrangements If you have some available income to pay towards your non-priority debts, you can offer a fair (pro-rata) share of your available income to each creditor based on the amount you owe them. Advantages This is a fair and transparent method of distributing payments. It is recognised by courts and widely accepted by creditors. You can increase payments when circumstances improve. You can reduce offers if your circumstances get worse. Disadvantages Creditors may refuse your offers*** Creditors may refuse to freeze interest and your debts may grow*** Creditors may only consider offers made through an advice agency - in this case you can complain to the Financial Conduct Authority (FCA). Creditors may still take court action against you. This may affect your credit rating. You must make the payments yourself. Many creditors only accept reduced offers for a limited time and may ask for regular reviews. ***it is always worth asking your creditors to reconsider How to work out pro-rata arrangements 1. Use your completed financial statement to see how much disposable income you have after you have paid household bills and priority debts, but without paying anything to your non-priority debts. 2. Add up the total amount you owe to your non-priority debts (Part E of the financial statement). 3. Take one non-priority creditor at a time and divide their debt by the total debt and multiply the result by the amount of the disposable income, the sum looks like this: Amount owed to individual Non-Priority creditor Repayment x Remaining disposable income = Offer Total amount owed to all Non-Priority creditors 4. Write the pro-rata offer on the financial statement against the creditor, and reduce your available income before you work out the next offer. You should not have any disposable income after you work out your last repayment offer. You will need to contact your creditors to offer your arrangements, remember to ask them to freeze interest and charges. If a creditor doesn’t agree to your offer don’t give up. Write to them again and tell them if other creditors have agreed to your offers. 3 You can use the sample letter (page 13) to write to your creditors with a copy of your financial statement to ask them to suspend interest and other charges so your debt does not continue to grow (they can refuse). If you need help completing your financial statement, or calculating pro-rata arrangements contact the Debt Advice Team or an organisation at the back of this booklet. Debt Management Plan If you can afford to make smaller regular payments towards your debts and want an easy way of paying, you could consider a Debt Management Plan (DMP). A Debt Management Charity/Company will go through your financial statement. If you have a disposable income, and are able to get out of debt in a realistic time, they will calculate pro-rata arrangements for you. You then pay the total amount of your pro-rata arrangements to the Debt Management Charity/Company, and they will send on each payment to your creditors. Warning - Some debt management companies charge a fee to arrange a DMP plus an additional monthly management fee for as long as the DMP lasts, this will take you longer to repay your debts. Reading Borough Councils Debt Advice Team can give you information/make a referral to a debt management charity who will not charge you to have DMP. Advantages This is fair and transparent method of distributing payments. The debt management company will negotiate with creditors on your behalf – their offers are more likely to be accepted and interest/charges may be frozen. The debt management company involved would be responsible for administering all payments to your creditors - you just make one monthly payment to the debt management company. You can increase your payments if your circumstances improve. Disadvantages You may not be able to make reduced offers if your circumstances get worse and you cannot afford to maintain higher repayments. A DMP will not work as well if creditors won’t accept offers or freeze interest. This may affect your credit rating. Write Off/Partial Write Off This can be a good option to try before formal debt options if you have no available income or capital (savings or investments), and your situation is unlikely to improve (or may get worse) in the foreseeable future. You can ask for all or part of the non-priority debt to be written off. If the creditor agrees, it means they will not collect any further payments and removes the debt from their records. Whilst most creditors accept the need to write some debts off, they don’t always agree when first asked. 4 Advantages If the creditor agrees it will reduce pressure, and the total amount of debt. It will be accepted that further recover action is not appropriate. Disadvantages The creditor may not easily accept to write off debt. This may affect your credit rating. Full and Final Settlements If you have some money either from savings or family/friends, you can consider offering full and final settlement offers to your creditors. This is when a lump sum of less than the total debt is accepted to repay the debt because the creditor agrees to write off the rest of the debt. Seek advice before offering full and final settlements to your creditors, so you can be supported to work out what to offer and have the confidence to make the offers to your creditors. You can also be supported to ask again if your offers accepted the first time. Advantages You repay less overall to clear the debt. It is easier than having to maintain an arrangement over a longer period. If only some of your creditors accept the offers, it would reduce your total debt, and may open up alternative options to deal with your debts.
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